It is not mandatory for car buyers to carry GAP insurance, which typically costs $400 to $600. But car dealers push the insurance, and lenders like it because of the protection it provides. When borrowers pay off the loans early, they are entitled to a refund of some of the GAP insurance premium because the coverage they paid for is no longer needed.
Laws in nine states require that customers get unused insurance money back. They are Alabama, Colorado, Indiana, Iowa, Maryland, Massachusetts, Oklahoma, Oregon and South Carolina.
Jennifer A. Temple, a Wells Fargo spokeswoman, provided a statement saying: “During an internal review, we discovered issues related to a lack of oversight and controls surrounding the administration of Guaranteed Asset Protection products. We are reviewing our practices and actively working with our dealers and have already begun making improvements to the GAP refund process. If we find customer impacts, we will make customers whole.”
Ms. Temple declined to say when the problem began. She said the bank was trying to assess how many customers had been affected. Wells Fargo improved controls on the refund process in 2014, she said. The unit of the bank that makes car loans is called Wells Fargo Dealer Services.
Asked about the regulatory inquiry into GAP insurance at Wells Fargo, Darren Gersh, a spokesman for the Federal Reserve Board in Washington said, “We are focused on ensuring that the root causes of a firm’s compliance and controls breakdowns are understood and addressed.” He declined to comment on the specifics, adding that “the Federal Reserve Board will take any regulatory and supervisory steps we feel are necessary to ensure the firm’s attention to compliance.”
A failure to refund the insurance money harmed borrowers whose cars were repossessed by increasing what they owed, a figure that the bank reports to consumer credit bureaus. All 50 states require that the amount of unused insurance be credited to those borrowers’ accounts, reducing the amount owed.
The bank alluded to the new problem briefly in its quarterly financial statement issued Friday. “The company has identified certain…